OCBC Investment Research has raised its fair value for Sembcorp IndustriesU96 from $4.80 to $5.40, citing the energy and urban development firm's improved ROE amid higher energy prices.
"Successful execution of its renewables strategy provides further scope for re-rating, though good assets may not come cheap currently," writes OCBC in its May 22 note, where a "buy" call has been maintained.
The company recently announced it will be building a new $900 million multiutilities centre on Jurong Island, which will supply power, steam, firewater and demineralised water to customers.
To be ready by 2026, the centre will include a new 600MW hydrogen-ready power plant.
Earlier, Sembcorp's 49%-owned joint venture in China completed the acquisition of three solar projects with a total capacity of 795MW, bringing its total renewables portfolio of solar, wind and energy storage in operation and under development globally to 9.8GW.
Sembcorp's 80%-owned joint venture with Jinko Power, meanwhile, has been given the contract by Oman to build a solar plant and run it for 20 years.
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Meanwhile, the company is seen to enjoy "upside potential" from stronger demand for energy amid record-high temperatures, says OCBC.
Going forward, the company's focus is likely to be on capital recycling. OCBCO39 reiterates that Sembcorp might potentially make partial divestment or list assets that can give steady yields.
By doing so, the company can unlock the value in its current assets and grow its renewable portfolio further.
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"The use of third-party capital would be helpful in allowing the group to not be bogged down by an asset heavy business," reasons OCBC, adding that the success of this strategy might influence whether the company may need raise new capital to fund its continued growth and transformation.
"Overall, the group continues to pivot in the right direction towards renewables, and its ability to deliver higher ROE should support share price performance," adds OCBC.
